Skycoin Distribution

Skycoin Distribution

DISTRIBUTION

23.08.2019

PAST AND FUTURE DISTRIBUTION OF SKYCOIN

CHRISTIAN OTT

AUTHOR

Introduction

The cryptocurrency market is well accustomed to the ICO model. Most projects use the approach of an initial coin offering to finance their idea via crowdfunding, with investors receiving a substantial portion of the coins of the invested project in return. From the start of these projects, most of the coins are held by investors and there will be little to no influx of new coins. Only a few projects use a long-term distribution model, in which just a slight portion of coins is released at a time and the distribution is executed over years. Skycoin belongs to this group of long-term distributed coins and we will take an in-depth look at how its distribution is executed.

Circulation

A total of 100 million Skycoin were generated in the genesis block.1,2 On April 2nd in 2015, these 100 million Skycoin were separated into 100 addresses with each of it having a balance of 1 million Skycoin (transaction).3 These addresses are known as the distribution addresses. Each Skycoin, that is not contained in these addresses, counts as circulating supply.4 Since April 2015, coins are successively taken from the distribution addresses and are put into circulation. I analyzed all transactions of the distribution addresses and displayed them in a chart, that shows how many Skycoin were distributed over time:

As the chart shows, the circulating supply increased periodically. It looks like the distribution was either made directly from the wallet (slow growth) or the coins were taken out of a distribution address completely and were then distributed (sudden growth). Nonetheless, there were some distribution events, that we can attach to this chart.

Distribution events – 2015 & 2016

The first initial public offering was announced in early 2014.5,6 It was held one year later in April and May 2015,7,8 where about 450 thousand Skycoin left the original distribution addresses. To be fair, it was not an usual IPO, it was more a private sale to dedicated early followers/contributors,9 who would not shy away from compiling the wallet on Linux.10 Because of the difficulties that came along with this early IPO, the team offered to continue selling Skycoin for the same BTC price of the IPO, until a circulating supply of about 2 million Skycoin would be reached.11 If they actually sold more than 2 million from the first 3 million Skycoin distributed in 2015 and 2016 is hard to determine. What we know so far, is that 1 million Skycoin were sold to a large investor or a consortium of investors, that were held in one address. The coins were sent to this address in September 2015 and have recently been sold.12 Concluding from that, an amount of 1.45 million Skycoin have evidentially been distributed via sales in 2015. Therefore, I would estimate that another 550k were sold to early followers, while the remaining 1 million Skycoin from the first 3 distribution addresses were distributed to team members and project contributors.

Distribution events – 2017

After some testing of a Skycoin distribution on a third-party platform,13,14 the next big distribution event was held on the exchange C2CX in early 2017. About half a million Skycoin were sold in this event.15 Followed by this success, another distribution event was held on C2CX in August 2017, where 1 million Skycoin were eligible to be sold to the public.16 However, since I couldn’t find any source indicating how many Skycoin were sold of these 1 million Skycoin available and the coins were sold for twice the market price Skycoin was traded at back then, the distribution event probably wasn’t very successful. I would guess, that about 10% (100k Skycoin) of the available coins were sold in the event. Overall, the Skycoin distribution was pushed forward in November and December 2017 with over-the-counter sales, with Skycoin being both sold manually and fully automated via the Skycoin website. About 50 thousand Skycoin were distributed in the automated OTC, which can be seen in the Skycoin explorer (automated OTC address).17 Determining the amount of Skycoin sold via manual over-the-counter sales is more difficult. The amount of Skycoin sold in these sales was rather high, as Synth has stated in an interview.18 One address alone has received 1 million Skycoin in December 2017, which I suppose is an OTC sale to a large investor (or a consortium of investors). Given that 4 million Skycoin were put into circulation in 2017, I would estimate, that another 1 million Skycoin were sold via OTC sales in addition to the 1 million Skycoin distributed to the large investor address.

Distribution events – 2018

In 2018 many smaller distributions took place. It started with the distribution of Skycoin to buyers of the official Skyminer, which was sold for one BTC each. The first batch of 300 Skyminers was handed to buyers alongside 450 Skycoin each,19,20 whereas the second batch of 300 Skyminers included a rebate of 650 Skycoin per buyer.21,22 These miner rebates add up to a total of 330 thousand Skycoin. Then in May, Skycoin was listed on Binance. Since Binance is one of the largest cryptocurrency exchanges it presumably required a listing fee (which might have been paid in BTC or in SKY) and a certain amount of Skycoin to ensure liquidity in the orderbook. Finding out how many Skycoin were distributed to Binance for these purposes is difficult, a look at Binance’s Skycoin withdrawal address can provide some hints however. The trading of Skycoin on Binance started on May 24, deposits were enabled one day earlier.23 The Skycoin withdrawal address on Binance was filled for the first time on May 25 with an initial amount of 503 thousand Skycoin. With the help of the Skycoin blockchain, I traced back the largest amounts of SKY deposited to Binance from this initial amount and it included 85 thousand Skycoin, that originated from a distribution address opened 5 months earlier. Therefore, I assume that these 85k Skycoin were given to Binance to provide the orderbook with liquidity. In June, Binance also held a trading competition and a lucky draw in cooperation with Skycoin, in which they gave away 50 thousand SKY.24 From June onwards, the Skywire testnet went live and rewards were handed to participants monthly. 14 months later, these rewards have accumulated to a total of 530k Skycoin.25 In July, around 700k Skycoin were distributed to an OTC seller, which became apparent after the investor sold all his coins on Binance a few months later (see his Binance deposit address for more information).26

Distribution events – 2019

In December 2018, the circulating supply started to increase from 10 million to 15 million Skycoin at the end of March 2019. It can be assumed, that most of these coins were distributed via OTC sales,27 so I would estimate around 4 million from these 5 million SKY introduced to the circulating supply from December 2018 to March 2019 have been distributed via over the counter sales. Skycoin also started trading at the crypto exchange LBank, which (according to an analysis of Skycoin’s blockchain) has received around 50k Skycoin for liquidity and airdrops. Another 1 million SKY has been released at the end of June 2019, which according to my research has been only used for payments/mining/bounties thus far. The circulating supply is currently at 16 million Skycoin.

The numbers shown in the graphic add up to a total of 10.395 million Skycoin, that have been mostly distributed via sales. The circulating supply is currently at 16 million SKY, although we have to consider that the Skycoin project didn’t necessarily distribute the coins directly from the distribution addresses, but rather took them out all at once and then placed them in several smaller distribution addresses. It is therefore possible that the real amount of Skycoin in circulation is lower than the amount displayed in the Skycoin explorer. Nevertheless, I can’t tell how many of these have been distributed, so let’s say 16 million is the actual circulating supply. Considering that approximately 9.7 million Skycoin were sold, (only) 60% of the circulating amount of Skycoin have been distributed via sales. So, what has happened to the other 40% of coins in circulation, that were not sold in distribution events?

A part of the Skycoin distribution strategy is to not offer all Skycoin to speculators, who might only be interested in short-term profits. Certainly, coins are sold to gather funds and provide liquidity to the market, but a vast amount of coins is distributed to people who contribute to the success of the project. Of the 25 million Skycoin that are immediately available for distribution,28 10-15 million will be offered in ICO and OTC sales.29 Another 10 million Skycoin are reserved to incentivize Skywire by either handing out mining rewards or offering a Coin Hour buyback.30,31 However, we don’t know if these 10 million Skycoin are fully part of the first 25 million distributable Skycoin. Furthermore, the Skycoin project is willing to fund interesting, dedicated projects within the Skycoin ecosystem, that move the project forward.32 There are also bounties available for individual contributors to the Skycoin project.33 So, going back to the 40% of coins in circulation that were not allocated for sales, it is assumable that they were distributed to contributors of the project (alongside 500k for Skywire Testnet rewards).34 In general, based on these numbers I would estimate that of the first 25 million Skycoin a minimum of 10 million SKY will be sold, while a maximum of 5 million SKY will be available to incentivize Skywire. I would further estimate that around 10 million SKY will be used to reward contributors to the project or fund projects, that move the Skycoin ecosystem forward. Let’s visualize these numbers:

As we have seen, 25 million Skycoin are immediately available for distribution. As soon as this mark of 25 million Skycoin in circulation is reached, another 5 million Skycoin become available per year, until there is a maximum of 100 million Skycoin available for distribution.35 In addition to that mechanism, there is an unknown group of developers involved in the distribution process, who need to agree to unlock 5 million Skycoin. If just one of these developers votes against distribution, it can stop the whole process.36 It is currently under consideration, if the growth should not be slowed down even more.37 Adding to that, each core developer can receive up to 1 million Skycoin, which are locked for several years.38 There are different mechanisms in place, that prevent the core developers from dumping the coins.39,40

So, how could a concrete distribution plan look like? We saw, that it took 4.5 years to distribute 16 million Skycoin. Let us assume, that 6.5 million Skycoin will be distributed per year in 2019 and 2020, which is already a high amount compared to the distribution in the past. This would mean, that it would take until the end of 2020, until the immediately available 25 million Skycoin are distributed. After that mark would be reached, 5 million Skycoin would be unlocked per year. If, for the following 15 years, each of these Skycoin would be distributed in the same year, the whole amount of 100 million Skycoin would be in circulation at the end of 2035. Let’s visualize it:

After looking at how the past distributions were executed and depicting, how future distributions might look like, you are probably still wondering, why the Skycoin project made the decision for this long-term approach. It is in fact such a different approach compared to the distribution of the majority of coins and tokens. Most new cryptocurrency projects choose the distribution method of an ICO, where they sell a large portion of their coins, because they require a decent amount of funding to execute their idea. It is basically a crowdfunding approach to finance their project. However, this did not apply to the Skycoin project. The early developers of Skycoin claim, that they were very early into cryptocurrencies. They say, they owned Bitcoin before it reached the mark of one US dollar and are therefore pretty well off.41 Additionally, they stated that a lot of the early development of Skycoin was funded by a bunch of different companies,42 meaning the Skycoin project didn’t need to fundraise money to finance the development. So, unlike the majority of other coins, they could thoroughly plan their distribution. In their opinion, it is the best approach to distribute coins gradually, with the influx of new coins decreasing over time, which is similar to Bitcoin’s distribution rate.43 They aim to sell small amounts of Skycoin at a time, and will reinvest the received funds into the project’s development and infrastructure.44 To not effect the price per Skycoin negatively by increasing the circulating supply, they intend to release coins slower than the growth of their userbase.45

Wrap-up

Unlike most other cryptocurrencies, the Skycoin project prefers to use a long-term approach for the distribution of Skycoin. Of 100 million Skycoin, about 16 million were distributed in four and a half years since the first ICO in April/May 2015. I estimated, that 6.5 million Skycoin could be distributed in both 2019 and 2020, until 25 million Skycoin would be in circulation at the end of 2020. After that, 5 million Skycoin could be distributed per year, so that there could be 100 million Skycoin in circulation at the end of 2035. Talking about the target audience of these distributions, the project wants to not only distribute Skycoin via ICO and OTC sales, but also use the coins to incentivize bandwidth providers in the Skywire network and to generally reward people who contribute to the project. All in all, I hope this article increases the transparency about the Skycoin distribution and provides answers towards most questions around this subject.

Sources – General supply

1

“Skycoin has a total supply of 100 million coins created in the genesis block.”

“So there’s one hundred million total and the reason that number was chosen was that one million coins is exactly 1% of Skycoin.”

Synth; Youtube; Coin interview with Skycoin; 30.10.2017

3

“The 100 million coins are being sent, 1 million coins to each of 100 addresses with multiparty lock system to prevent theft. There is also a time capsule lock on the private keys.”

Skycoin; Bitcointalk; [SKY] Skycoin Launch Announcement; 01.04.2015

4

“unlocked means it can be distributed, locked means it cant be distributed, circulated means distributed”

Steve [Sky Dev]; Telegram; Skycoin main channel; 01.11.2017

Sources – Distribution events

5

“How the IPO Will Work: 1 million coins (1%) will be sold for 50k in Bitcoin.”

skycoin; Bitcointalk; [SKY] Skycoin Launch Announcement; 18.04.2014

6

“IPO pre-registration begins in a few hours. Trying to get binaries compiled and making sure this bitmessage library works. Pre-registration will last two weeks. Until the 6th of September. Pre-registration will be required for the IPO.”

skycoin; Bitcointalk; [SKY] Skycoin Launch Announcement; 22.08.2014

7

“2500 Skycoin per Bitcoin. Which is about $0.10 / Skycoin. Bitcoin to USD is too volatile so just set it to that. … I think we started getting bitmessage requests for IPO in about two months ago and are just sending out coins now. … There are about fifty people in the IPO so far. The average amount is $2000. About half the coins in the allotment are already accounted for. Very good so far.”

skycoin; Bitcointalk; [SKY] Skycoin Launch Announcement; 18.04.2015

8

“25% of the IPO receipts have been processed. I am this far down list now. I have not even gotten to processing the orders for the Skycoin devs yet.”

skycoin; Bitcointalk; [SKY] Skycoin Launch Announcement; 02.05.2015

9

“This IPO is for developers, people who have been following for a while and experienced people who know what they are doing. This is more of a private offering and not really an IPO. The purpose is to get Skycoin trading and work on bugs.”

skycoin; Bitcointalk; [SKY] Skycoin Launch Announcement; 07.02.2015

10

“We did a ghetto ICO, by hand on bitmessage a few years ago. To software developers who had to compile the wallet from source, on linux.”

skycoin; Bitcointalk; [SKY] Skycoin Launch Announcement; 25.12.2016

11

“Yes we reserved 2% of the coins for people on the Bitcoin talk thread, at the ICO price. Bitmessage did not work for a lot of people. We tried to do sale over Tox bot and that failed and people had problems. Also, no wallet builds and difficult to buy. We have developers we are reserving coins for, because they have not been able to get compilation working on their platform.”

skycoin; Bitcointalk; [SKY] Skycoin Launch Announcement; 10.10.2016

12

Please refer to my blockchain analysis of Skycoin, where I dedicated one paragraph to this address.

Christian Ott; Refering to my chain analysis of Skycoin; 19.07.2018

13

“We have an invite only ICO on third party platform, that you need QR code to access. 25 people have code right now, and it is open to anyone who posted on the Bitcoin talks thread in the past 4 years. More information later.”

skycoin; Bitcointalk; [SKY] Skycoin Launch Announcement; 23.11.2016

14

“Now we are testing ICO on third party website.”

skycoin; Bitcointalk; [SKY] Skycoin Launch Announcement; 25.12.2016

15

“Last distribution was 500,000 coins. That took 4 months to sell. But then in last month someone wrote one article and skycoin was put on one website and whole ICO sold out in two weeks”

Synth; Telegram; Skycoin main channel; 22.04.2017

16

“On August 8, 2017, 1% (1 million) of Skycoin will be sold at a fixed price of 0.002 BTC / SKY.”

Skycoin; Skycoin official website; Distribution; 13.08.2017

17

“-The OTC price adjusts when we adjust it -The OTC wallet is bxpUG8sCjeT6X1ES5SbD2LZrRudqiTY7wx you can see how many coins are in it. There’s about 20BTC worth at these prices -We add coins to the OTC wallet manually. This reflects the amount available for sale. -The OTC price is kept higher than market price for reasons stated 100 times in chat and also in blog posts”

Steve [Sky Dev]; Telegram; Skycoin main channel; 09.01.2018

18

“I have 300 people messaging me for the OTC. Until we have the automated system in place, which is just being turned on now, I had to do these things by hands, so we were getting 100 messages an hour for OTC sales. It took three weeks I think for me to finish all of the OTC sales … So we have these OTC orders and some are like 5, 10, 200 Bitcoin…”

Synth; Youtube; Coin Interview with Skycoin 02; 11.12.2017

19

“For the cost of 1BTC you receive the miner (value of 0.05 btc +/-) and you receive a rebate in the form of .95BTC worth of Skycoin (450 Sky at the moment)”

“We will set the total cap of the OTC sale to bring Skycoin’s distributed percentage to be between 10% and 15%. Currently, Skycoin is at 6%. The remainder is reserved for the Skywire network subsidy, until we hit the 25% timelock cap and enter a maximum 5% per year distribution.”

Skycoin; Skycoin Blog; Skycoin Distribution Plan; 09.10.2017

30

“We have decided we will distribute a portion of the Skycoin over time to people running Skycoin meshnet nodes. To promote network usage and to get users on to the network and balance out the whales.”

skycoin; Bitcointalk; [SKY] Skycoin Launch Announcement; 09.03.2017

31

“We have 10 million skycoin allocater for coinhour buybacks over a few years to bootstrap the skycoin to coinhours market.”

Synth; Telegram; Skycoin main channel; 25.11.2017

32

“However, if 1% of currency is created each year and invested in activities that increase the value of the coin network, by more than the cost, then doing so maximizes the value for all coin holders. If $1 in investment in meshnet deployment, PR, advertising or lobbying nets $5 in coin market cap then coins which use this mechanism will out-compete coins that are unable to. The market-cap and values of coins pursuing this strategy will grow significantly faster than the alternative.”

Skycoin; Skycoin Blog; Development Update #45; 17.12.2014

33

“If you come in and you do a VPN app or videosharing app or a messaging app on Skycoin, we might give you half a million dollars of Skycoin. We fund our developers. We invested in a lot of different development teams and we distributed the coins to the people that are doing the work and promoting it. If you are doing a meetup, we will give you Skycoin. If you are doing T-Shirt designs, we will give you Skycoin. If you help with translations, we have a bounty program. So, we are busy distributing the coins to people moving the project forward.”

Synth; Youtube; AMA hosted by Crypto Brahma; 11.03.2018

34

“We are going to be distributing coin bonuses to about thirty contributors, on a vesting schedule over the next few years. For example – one project manager who has help fix over a hundred fifty bug tickets is getting 250,000 SKY over the next four years (about 40k USD in SKY at price when he joined project) – website guy/content/marketing/design guy who was critical is getting 60,000 SKY over next two years – some contractors and major contributors are getting 5,000 SKY to 30,000 SKY distributions over the next two years for work on mesh network, bounties, bug fixes, etc”

Skycoin; Skycoin Blog; Ask the developers #8; 25.12.2016

Sources – Maximum supply

35

“The Skycoin distribution is timelocked. This means that, of the undistributed Skycoin, 25% are immediately distributable. The remainder cannot be distributed until the first 25% have been distributed. Once the first 25% have been distributed, an additional 5% is unlocked for distribution. For each subsequent year thereafter, an additional 5% is unlocked for distribution. This gives Skycoin a 14 year distribution timeline, after the first 25% is distributed. We may extend the unlocking process to take up to 25 years, but we will never shorten the timelocking schedule. There is no requirement that the yearly 5% be distributed. The unlock only enables that amount to be distributed. The locked Skycoin are allocated for expansion of the Skywire Network via targeted network subsidies and for bounties for platform development.”

Skycoin; Skycoin Blog; [SKY] Skycoin Distribution Plan; 09.10.2017

36

“The 75 million (75%) undistributable Skycoin cannot be distributed until the first 25 million (25%) have been distributed. After that is done, for each subsequent year thereafter, 5 million coins (5%) are unlocked via an unanimous consent (1 vote against distribution can stop the whole process) of an unknown group of developers. This does not mean that each year 5 million coins have to be distributed, they are just unlocked and it is possible to distribute them.”

“We are considering slowing down the timelock even further: * 5% each year for 5 years * 4% each year for 5 years * 3% each year for 5 years * 2% each year for 5 years * 1% each year for 5 years This make it last for 25 years instead of 14, and is better suited to our growth forecasts. Note that for technical reasons, locking is handled in 1% chunks, otherwise we would be doing exponential decay.”

skycoin; Bitcointalk; [SKY] Skycoin Launch Announcement; 28.08.2017

38

“Each of the core developers is only getting 1% each and they are locked for several years.”

Skycoin; Skycoin Blog; Ask the developers #7; 07.05.2015

39

“We are putting technical and human measures in place, to ensure that if any of the key contributors starts dumping that it would only be temporary. We want to avoid a situation where someone has 30% of the coins and the community has 2% and that person could dump their coins everyday on the market for a decade before they ran out. That is what happened with NXT and we wanted to avoid that.”

skycoin; Bitcointalk; [SKY] Skycoin Launch Announcement; 04.04.2017

40

“Future Measures: – we are going to time lock the addresses in the future, so the node will reject transactions spending their outputs – we are going to put constraint in the code, so the blocks have to be distributed in sequential tranches”

skycoin; Bitcointalk; [SKY] Skycoin Launch Announcement; 04.04.2017

Sources – Reasons for the long-term approach

41

“All of our lead developers were in Bitcoin before it was at a dollar, so they are pretty well-off. Then we had an ICO and even the developers had to buy in the ICO and that was when Bitcoin was less than a hundred dollars and Bitcoin is over 10,000 dollars now. Actually, we never even had budgeting until very recently, because the Bitcoin price was just going up and up and up and no matter how many people we hired, we couldn’t even spend it.”

Synth; Youtube; AMA hosted by Crypto Brahma; 11.03.2018

42

“Skycoin is more like a consortium. There is a bunch of different companies, that are all using the infrastructure or are contributing to the infrastructure and funding developments. In the beginning we didn’t do a huge ICO to raise money, most of the development was funded by our corporate partners and also the personal contributions of the developers who made a lot of money on Bitcoin and just wanted to see this technology built.”

Synth; Youtube; AMA hosted by Crypto Brahma; 11.03.2018

43

“Our distribution schedule is very similar to Bitcoin. – We are not doing a large sale of 30% of the coins at once like Ethereum. We think this distribution schedule sells to many coins and limits the upside for investors and will destroy the long term price when the speculators/miners dump. – We are not hoarding 98% of the coins like Ripple (the Ripple free float is a lie) – We think a gradual distribution with the number of new coins decreasing over time is the best distribution schedule. – If the distribution negatively impacts the price, we will cut the distribution back and if it continues to fall we will begin buybacks. – We have a professional market maker partner who is invested for the long term and will provide liquidity on both sides of the order book. We think the Bitcoin distribution schedule is the most natural and has been the most successful. We do not have miners and no new coins are created, so it has to be done by hand, but we think that is best way to allow gradual long term appreciation.”

Skycoin; Skycoin Blog; Ask the developers #7; 07.05.2015

44

“The Skycoin distribution schedule and philosophy is identical to Bitcoin’s distribution rate, or how Facebook or Google stock was distributed. Google did not distribute 80% of its shares by doing a massive Ethereum style crowd sale, before any of the work was done. It sold off fixed, small slices of equity at each step at an increasing price. Then they dumped the money into development and increasing the value of the equity for all stakeholders by investing the money raised in infrastructure. This is what makes sense for funding a large, long term project whose value is increasing. We are using this model, because it works.”

Skycoin; Skycoin Blog; Ask the developers #9; 13.04.2017

45

“There are two conflicting things we have to deal with – The community wants us to distribute at a rate so the coin becomes less centralized over time – The community does not want us to distribute so quickly that it drives the price down … We want to distribution coins, slower than the rate of user growth – If we distribute 10% of the current free float (10% inflation in free float) – Then the user base growth for Skycoin should be at least 10 or 20% over the same period … The max any one person holds, is 1% of the total coins. 1 million SKY. These are early developers, who have been working on the project for years. This is to eliminate dumping and prevent NXT/Ripple style situations as people join and leave the project team. We have an extremely tight coin supply. No one person is in a position to do major damage, like what happened with NXT or Ripple. We studied every way, that every previous coin had failed and then explicitly designed our rule set to avoid those methods of failure.”